Thursday, May 14, 2009

OUR CHALLENGE: CYCLICAL OR STRUCTURAL?

In yesterday's Bakersfield Californian I wrote that we shouldn't be doing any happy dances over claims that the U.S. economy seems to be recovering, or that the worst elements of a collapsing economy seem to be leveling out. In today's Financial Times' their sentiment for the global economy - which includes the U.S. - suggests there is a "pause" in the global economic slowdown.

As proof, the Times points to "long-term" economic indicators used by the Organisation for Economic Co-operation and Development (OECD) to project economic patterns (click on graph to expand).



Could I be off about the U.S. recession? Should we be preparing ourselves for a "pause" in the economic decline in the U.S.? Perhaps. But not for the reasons the OECD is suggesting. The insights of the OECD are determined by "growth cycle" trends, which may not be applicable given the type of meltdown we are currently experiencing. Specifically, what we are experiencing is tied to stupidity, greed, and a lack of regulation.

As far as I can see, the same market players who got us into this mess have not been fired, the same system of "reward" is in place, and the deregulation that took place in the 1980s and 1990s has not been rolled back. Then we have the massive consumer debt loads and stagnating wages confronting the American taxpayer.

Simply put, the problem is not cyclical, it's structural.

- Mark

UPDATE: Thanks to Mark Thoma's site, Economist's View, I've found a couple of articles that agree with me here and here.

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